Fitch cuts Barclays ratings on subprime exposure

NEW YORK, April 25 (Reuters) - Fitch Ratings on Friday cut its ratings on Barclays PLC (BARC.L: Quote, Profile, Research) and its banking unit on earnings and risk volatility in the wholesale and investment banking unit, which is reeling from the U.S. subprime crisis.

Britain's third-biggest bank on Thursday said first-quarter profits fell from a year earlier after its investment bank, Barclays Capital, and a fund management arm were hit by tough financial market conditions. For details, see [ID:nL24318292].

Barclays, ahead of a full first-quarter trading statement on May 15, told investors that profits at Barclays Capital and Barclays Global Investors were "well below" the strong levels of a year ago, but still profitable.

The British bank's "investment banking operations and ambitions expose Barclays to risks and volatility that are not in keeping with an "AA-plus" rating," the rating agency said in a statement.

Fitch cut Barclays and Barclays Bank issuer default ratings one notch to "AA," the third-highest investment grade level. The outlook is stable, which means no additional rating action is expected in the next one to two years.

The stable outlook reflects the bank's diversified earnings and expectations that management will strengthen Barclays equity ratio to at least 5.25 percent from 5.1 percent at the end of last year.

"Barclays' capitalization is weaker than many of its peers, but its sound historical profitability has tended to be a strong first line of defense, including in 2007," Fitch said.

Barclays Capital had approximately 36 billion pounds ($71 billion) of exposure to U.S. subprime and Alt-A mortgages as well as insurers, commercial mortgages, structured investment vehicles and leveraged finance at the end of last year, Fitch said.

Fitch also cut ratings of Barclays Bank's subsidiaries, Absa Group Limited and Absa Bank Limited. (Reporting by Anastasija Johnson; Editing by James Dalgleish)